>> >> this is "bbc newsnight." funding for this presentation is made possible by the freeman foundation of new york, stowe, vermont, and honolulu. newman's own foundation. and union bank. >> at union bank, our relationship managers work hard to understand the industry you operate in. working to nurture new ventures and help provide capital for key strategic decisions. we offer expertise and tailored

solutions in a wide range of industries. what can we do for you? >> the cold-blooded murder of an american ambassador, attacks on american embassies across the world's. >> this week, a 14-minute film leads to protests across the world. >> the question in washington is how to respond. >> and havoc caused in italy by a london bank that revealed how its sold indispensable financial products. >> people need to wake up to what is going on, or nothing will change.

reregulation because these banks are plundering society -- we need regulation because these banks are plundering society. >> hello. one of 14-minute film trailer was posted on youtube, it was barely noticed, but this week, the muslim world is in turmoil over a film that they believe denigrates the prophet muhammed. we've seen demonstrations in the yemeni capital sanaa. the arab spring once promised a change relationship between the arab world and the west. the events of the past week have unveiled the complexity of what it has actually brought. >> is this big banks that they get? the u.s. consulates in -- is this the thanks that they get? the u.s. consulate in been gauzy

rex. -- in benghazi wrecked. the wave of anti-americanism rolled on through the region. in yemen. in iraq, they burned the stars and stripes, chanting "no to america, no to israel." meanwhile in egypt, police fired tear gas at demonstrators in a third day of unrest. democracy in north africa, halted by the west, facing to radical anti-western groups that were once suppressed by the ubiquitous security forces. soon after last year's uprising in libya, we went to a newly liberated town, famous or notorious for sending an

unusually high number of young muslims and to fight american forces in iraq. some former soldiers return to their own country last year, joining revolutionary militias, and keeping their weapons even after gaddafi was overthrown. s he says he knows the group' influenced but -- influenced by al-qaeda were behind the attack on the u.s. consulate. >> it is first hand information. it is direct information. they believe libya cannot be a hub for the conflict. but it should be used or utilize as a backyard for a logistic space for a bigger

fatah, which is egypt or syria or maybe both of them. >> the americans cannot reverse the arabs bring. the question as how to respond to the dangers? -- the americans cannot reverse the arab spring? should it avoid treading too heavily in the region for fear of exacerbating the issue? or has it become, as some republicans feel, too indecisive and apologetic? america needs to make it clear what it stands for. >> what the united states needs to do is take the kind of leadership that will organize the international community to address these crises, and it does not appear that is happening in the way that is productive and it's the result that we want. which is basically not to have the interest at the military level. at least two other feelings, the

power vacuum, and ultimately, those who fall into the power vacuum are radical islamists. >> while americans still have widespread support from libya, shown by pro-western demonstrations, they need the help of the libyan government to track down the ambassador's killers. >> with america and now, based on the old strategy or tactics, and that means all the work done by president obama's administration has just disappeared. it is like a waste of time. i believe america successfully manage to pull itself out of the so-called war on terror, which is very important for the future between us and america and the arab world. >> it is also the new arab

leaders. they met in europe this week to seek financial assistance. >> we stand against anybody who harbors these faults slogans or cause this hatred among the people. we cannot help -- cannot accept there is such an anti -- enmity or the killing of anybody, no matter how. >> clashes resumed in cairo, despite an attempt by google to block addiction access to the controversial film. it is another week of difficulties in the relationship between america and the new arab democracies. >> i have been talking to the

u.s. ambassador to the un and paul wolfowitz. do you think the film had anything to do with it? clacks i think the film is the immediate, proximate cause -- >> i think the film is the immediate, proximate cause. but i think there are people out there waiting to express their anger at any insult that comes their way. the arab spring, country by country, it is the same anywhere. it goes beyond the era spring. the voice of the people is a more powerful political phenomena and. there are different parts of the voice of the people. but they can express themselves now. the security forces are not able to deal with all the emanations of that. >> you think it is spontaneous?

one paper in the u.k. is suggesting it was a security breach, that the whole thing was planned, and secure documents have gone missing from the embassy in libya. do you know anything about that? would that surprise you? >> we still do not know a lot about how these demonstrations were organized. certainly what happened in benghazi was not a spontaneous outburst of popular anger. it was a nighttime attack by a rather small, armed group. yes, there are issues between united states and the arab world and we should not get for them to be resolved any time soon. this is a huge upheaval. but what we're seeing more than anything is a fight within the arab world. in july, there was a remarkably peaceful election in which the muslim brotherhood came in a

distant second. the libyan people really voted for a really religiously- conservative, but moderate approach to politics. the people with the guns have a different view of things. >> sure, but nonetheless, it was your ambassador that was targeted or killed. it was the u.s. embassies in other cities that have been targeted. this is about making the u.s. the external enemy once again, isn't it? >> is also about terrorizing people. that is saying if you stand up for reasonable posions, you can be killed. i think it is very important to stand up to this kind of terror. at least in libya, you are talking about extremists. unfortunately, as much as libya owes its freedom to the united states and your country and france and other countries that limit their assistance, the people who did their training in the militias are heavily dominated by extremists.

>> it is interesting, that line about owing your freedom. the caliban line comes to mind. "you taught me language." a lot of people -- a lot of people will be looking at the arab spring and drinking "this is what we gets -- and think "this is what we get?" >> you cannot look for steady improvement. it will be jagged. >> but you could say this would not have happened under khaddafi, this would not have happened under a dictatorship? >> yes, this is a hard -- horrid period. but it is not going to be the only thing that counts on the score of whether this was a worthwhile not. it will be a long process. it will be a generational

process. >> we knew who was behind it. what we know now, and it is very important to say this, this is not a popular move by the libyan people. the libyan people, for the most part -- they have been disgusted by what happened to someone who was deeply committed to the future of their country and they know with. now the question is, can that sentiment demobilized? to talk about some obscure film is a distraction in that case. >> what do you make of mitt romney when he says that american leadership is still sorely needed, that american leadership is made necessary by the us? do you believe that or is it time to take a back seat? >> said in the back seat is part of what got us in -- i think the back seat is part of what goddess in trouble with the people with guns in libya.

look, i think the fundamental strategic point here is, i would bet at the high, high end of it, 10%, 20% of people in the muslim world share these views. the other 80% are in danger of being terrorized into silence or some kind of complicity. it depends how you define leadership. i think those people hope for the united states to be there to help them. not just the united states, but you're as well. >> should they have been armed? >> the egyptian -- >> no, the uprising. >> the fact that arms are awash among the people is extremely serious and makes it that much more difficult to defend yourselves. you need -- again, there is the potential disaster of the day you cannot predict. you very large security forces

around the center. this idea that leadership can go in and change the character of what is happening with the arabs bring -- arab spring -- is the people who are speaking. we cannot intervene from outside. it is not a test of leadership. >> on star. the people were not speaking in benghazi. it w a handful of armed extremist. we were told if we are to the opposition, the country would be awash in weapons, so we did not arm the. -- arm them. now the guns are in the hands of people that are not friendly to the libyan people. maybe leadership is the wrong word. >> all right. >> thank you, both, very much indeed. now to the euro crisis.

when they say smog-sounding britain -- not so fast. local authorities were sold financial products from banks based in london that they could not have understood. whistle-blowers within those banks highlighted what they thought were problematic were fired, and their complaints were routinely ignored. john lyon found out more. >> this is a tragedy of operatic proportions of london-based banks making massive profits of inappropriate deals in adelaide. we reveal the -- deals in italy. we revealed the deals that are pushing italy to the brink. >> at the surface, it was a great deal. the italians thought they would get the money basically for free. >> and the whistle-blowers telling us about the culture of

greed in britain-based banks. and the italian hero who fought the banks without any help from a british regulator. >> i saw no intervention from london in any british-based bank. >> the consequences of the scandal might be more than financial for all of europe. >> we let a social revolt and the civil war. ♪ >> the home of opera is turning sour. its debt levels are as high as greece, gee bee is shrinking, and a bailout looms. -- gp is shrinking, and a bailout looms.

far from inventing banking, the italians and then said -- the italians and then said opera. most famous opera house is this one, la scala. at the times, the deals were very good value. in fact, they were too good to be true. and we all know about things that are too good to be true. investment banks created something far more creative and profitable than opera, called derivatives. these financial instruments were sold as a risk free way to borrow. but some of them saw less well protected customers overseas. here is how it works. a city would issue a bond which would be bought by the inf permit -- by the investment bank which would sell it to other banks.

that is the easy part. next, the banks sell the city i derivative, called a swap. it put taxpayers in italian provinces on the globe for complicated campbell's by london-based banks, although -- complicated clauses by a london- based banks, although the bank said that the customers were aware. it was not just to milan. the financial engineering spread to every corner of italy, even to universities and hospitals. >> at the surface, it was a great deal. italians thought it would get the money basically for free because it would it advanced money to be repaid in decades to come. and they did not have the

technical capacity to analyze those deals. oftentimes, they depended on experts and financial advisers, who were in fact paid by the bank's. so, they were a counterpart with no intention to protect the interest of the italian authorities. they ended up taking on risks that were much higher than what was appropriate for them, and taking risks that later on, you know, could lead to even bankruptcy. >> the irony is that the federal government in rome actively encouraged cities and regions and to directly borrow from london-based bank's. the idea was to get the bar when from rome down to join the euro. -- get the ball rolling -- borrowing from rundown to join

the euro. but the banks did not bet on chiefline -- milan's prosecutor. he told us how this city was a potentially liable to london- based banks and doggedly pursued them, despite their secretive ways. >> their behavior was not honest, nor was it transparent. it allow them to make profits that ordinarily would not have been possible. afterward, they refused to show us their records. >> politicians need to face a challenge and people need to wake up to what is going on, or nothing will change. people tend to take their capital out of the countries of regulation comes in. but we need regulation, because these banks are plundering society. >> ubs, deutsche bank, and

jpmorgan changed their attack. after two years of stonewalling, these banks paid milan a settlement and tore up the offending contracts, without, of course, admitting any guilt. if milan, the wealthiest parts of italy and the financial capital of the country, can fall for the steel -- for these deals with land mines in the small print, what chance the poorer parts of the country? ♪ parts of italy are like a different country. just a few meters from the capital of palermo, people are selling their belongings.

they used are risky swap to manage repayments for the london-banks -- london-based bank nomura. >> unemployment in places like this can reach as high as 90%. which means the majority of people around here are dependent on the city or the state for their living. but the cities and the states are broke. part of this is because they signed contracts with london- based banks, which put the citizens of italy and the region on the hub for hundreds of millions of euros. a world away from the slums, the new mayor of palermo says he is going to be cleaning up after a decade of corruption, including deals with foreign banks. >> it is the responsible --

they're responsible for the international crisis. they destroyed the financial system of the world's. one of these victims was cicely. >> the mayor does not hold back from criticism of former governors of sicily, one of whom is in jail for his ties to the cosa nostra. he also had ties to offshore bank accounts, into which tens of millions of euros of facilitation fees were paid by the nomura bank. these actions could have far reaching consequences according to him. >> if you have this culture with this risky activity, there is

the risk we will have a social revolt and the civil war. ♪ [singing in italian] >> why didn't anyone to anything in the face of what seems to be obvious misselling. at least one did. he told us -- "during my time, i brought up the issues with some of my managers regarding derivative sales in italy. as per procedure, i informed the managers of such concern, then internal compliance, then the most senior management's." he also inform the ssa after he

was forced out of his job, but the bank refused to recognize him as a whistle-blower, which would have protected him under the law. the bank would not comment on an individual case. not a single uk-based bank has been forced out -- forced out individuals for highlighting problems within their bank. he was working at an investment bank on a different matter. he, too, was fired. it told us how he was portrayed as a malcontent by his bank for highlighting problems with that. >> you got fired by the firm for blowing the whistle. white lotus operon the -- what modus operandi does a bank followed? >> it is an unholy alliance of

mutual self-interest. they do everything to bad mouth the whistle blower. they have a 100% success record. >> on one occasion, the watchdog told him never to contact them again. ssa has been a central theme of the financial crisis, with many accusing it of being too close to the banks. >> the role has been very much in the spotlight. i think the banks, if they were able to, would reduce its powers, but it seems that their surveillance of the london-based banks result in no intervention of them. ♪ the regulator concedes that no banks have been sanctioned for firing a whistle blower and could not comment on individual cases.

back in italy, the banks at the center of this derivative story face criminal and civil action against them from several cities and regions. some regions of even stopped repaying until these cases are settled. all of them refused to answer our questions keeping many wished not to comment in light of ongoing proceedings. all of the emirate -- denied wrongdoing. that is all for this week. goodbye. >> make sense of international news at bbc.com/news. >> funding for this presentation is made possible by the freeman foundation of new york, stowe, vermont, and honolulu. newman's own foundation. andunion bank. -- and union bank.

relationship managers work hard to know your business. offering specialized solutions and capital to help you meet your growth objectives. we offer expertise and tailored solutions for small businesses and major corporations. what can we do for you? >> "bbc newsnight" was presented by kcet los angeles. by kcet los angeles.